STEVE CANNANE, PRESENTER: And now to tonight's guest. Wayne Swan is China bound on his trip the Treasurer and Deputy Prime Minister is due to meet with Chinese officials about moves to internationalise the Yuan as well as marking the 40th anniversary of diplomatic relations with China, spearheaded by Gough Whitlam.

Before heading off he spoke to Lateline about the economic conditions in the region, plans for greater cooperation with China and his party's disenchantment with the Greens.

Wayne Swan thanks for joining us.

WAYNE SWAN, TREASURER: Good to be with you, Steve.

STEVE CANNANE: Another bad poll today with Newspoll suggesting Labor's primary vote is now languishing at 31 per cent. Will getting stuck into the Greens do anything to increase that primary vote?

WAYNE SWAN: Well, the first thing, Steve, is that I'm not a political commentator about the polls and I don't comment on them on a weekly or daily basis. It's pretty true that we've put in place over the last 12 to 18 months some very tough reforms and when you put in place big, tough reforms they strip a bit of political paint off you and there's no doubt that's the case with us.

But we're in here to do the right thing by the country and in the past when we've made those big reforms, just like we made them during the Hawke and Keating era, they do strip political paint off. They're never easy and the Government is under no illusions about that but what we're determined to do is do the right thing by the country.

STEVE CANNANE: Why is there what appears to be a concerted attack from both within the parliamentary party and outside the parliament against the Greens?

WAYNE SWAN: Well I think there are some views that have been expressed by people in the NSW branch. I wouldn't say there's a concerted attack. The fact is that the Labor Party's been around for over 100 years, we've always had parties to the left of us and we've had parties to the right of us but what we do is we stand on our own two feet and we put forward policies which are based on Labor values and there's quite a few people in the party who want to go out there and argue about those Labor values and how they differ from the Greens on the one hand and the Liberal Party on the other.

STEVE CANNANE: Let's talk about some of those comments coming out of the NSW branch. Sam Dastyari has categorised the Greens as extremists not unlike One Nation. Are the Greens extremists?

WAYNE SWAN: Well on some policies they are extreme, just like the Liberals. You see the Liberals and Greens voted together in the Senate to knock off overseas processing. I regarded that as extreme. So it depends on what particular policy you're dealing with. At one stage we had the backing of the Greens when we put in place the stimulus which saved this country from recession. That was opposed by extremists in the Liberals who didn't see the need for it because these matters change vote by vote, policy by policy.

STEVE CANNANE: So they supported the carbon tax, they supported the mining tax, they supported the stimulus package, as you suggested, they weren't extremists on those measures?

WAYNE SWAN: No, of course they weren't, they supported good policy and contrast to the Liberal Party that was pretty loopy. If you wanted to look for a loopy policy at the moment is Tony Abbott's Opposition to the mining tax, a tax which is going to spread the benefits of the boom to every corner of our country. He's out there opposing that so he can give a tax cut to Clive Palmer. That's pretty loopy and pretty extreme.

STEVE CANNANE: Given that you think they were so sensible on those policies would you support any push to possibly put them last when it comes to preference deals?

WAYNE SWAN: That's entirely a matter for the party organisation. I say it's horses for courses. These judgments will be made election to election. There are other judgments made by the Greens in NSW in the recent State election. So these matters change from election to election.

STEVE CANNANE: So the parliamentary party has no say on whether that will occur?

WAYNE SWAN: Well, what happens, and this happens in all the major political parties and the other political parties, is that these decisions are taken organisationally. It has always been the case and will be the case in the future.

STEVE CANNANE: Okay, but at the moment you and other cabinet members are arguing that Tony Abbott will have a very hard time repealing the carbon tax. If the party decides to put the Greens last in the Senate, then suddenly you're going to increase Tony Abbott's chances if he wins the next election of controlling the Senate, aren't you and therefore repealing the carbon tax?

WAYNE SWAN: Well I wouldn't accept that that follows from your assumption. The fact is these matters are handled by the party organisation. I'm not going to get into hypotheticals about the outcome of the next election in the Senate.

STEVE CANNANE: So you don't think if the Greens were suddenly put last then that would diminish their chances of having representation in the Senate?

WAYNE SWAN: It wouldn't necessarily do that at all. The fact is it will depend on what's going on overall in the election campaign. But I'm not here to comment on hypothetical outcomes of elections that haven't happened yet.

STEVE CANNANE: But these decisions that are made by parties end up having an impact on Labor policy. If you look at the situation of where the Victorian Labor Party decided to give preferences to Steve Fielding, the family first candidate in Victoria. That led to him having a control in a Senate, to a Green senator not being elected that impacts on policy, doesn't it?

WAYNE SWAN: Sure, and that will happen election to election. The Greens gave some preferences over the Labor Party to the Liberal Party in the NSW Upper House and that had consequences for that election. But I'm not going to go into the hypotheticals for that for an election that hasn't happened, in an event that hasn't yet to unfold.

STEVE CANNANE: Okay let's move on to other matters and the NAB's business confidence index was released today and it fell in June from -2 to -3, why are Australian business leaders so gloomy?

WAYNE SWAN: You have to have a look at the data because the data has been mixed. If you look at some of the data that came out last week, for example, retail sales, they were quite strong. If you have a look at the building data that came out last week it was exceptionally good but I would just caution judging any data on a month to month basis. You are entitled to run through it but you need to look at it over time. The fact is there's been a disconnect, if you like, between the survey data on confidence and many of the real economy outcomes that are happening and that's been going on for a while.

STEVE CANNANE: But June is a key month when it comes to data, that is the month before the mining tax came in and the carbon tax came in and according to the report confidence deteriorated heavily in mining and manufacturing, does that suggest that the mining tax and the carbon tax is having an impact on confidence?

WAYNE SWAN: No, what I'm suggesting is we should wait and see what the real data shows, not just the survey data about confidence but what consumers and what industry actually did in those months. That will be the real test of where the economy is, not that confidence data.

STEVE CANNANE: But business confidence is critical, isn't it?

WAYNE SWAN: Well, we've seen business confidence data fluctuate up and down, but what we have seen is some reasonably strong, real economy data. Good growth in the March quarter. We've also seen since then reasonably strong retail sales. I think we shouldn't just concentrate too much on the confidence data and we ought to rely a bit more on the real economy data and I do readily concede there's a disconnect at the moment between the two.

STEVE CANNANE: Okay, you're about to head to China and give a speech in Hong Kong tomorrow and part of what you will be talking about is the fact that the Australian Government has commissioned a white paper on Australia in the Asian century. What do you think needs to be done to capitalise on the prosperity in this region in the coming years?

WAYNE SWAN: Well, first and foremost, Steve, I'm going to China to celebrate the 40th anniversary of the establishment of diplomatic relations, a very significant event in our history which, of course, was led by Gough Whitlam. This will be my 7th trip to China as Treasurer and it's an ideal opportunity for us to look at where the relationship has been, how far it's come and what we can do in the next 40 years because what we've seen has been a remarkable transformation to the point that we now talk about the Asian century of which China is a very important part. What we have to do in Australia is make sure this is the Australian century within the Asian century and that we're not just a passenger in the Asian century.

STEVE CANNANE: So what do we need to do to make sure Australia benefits from the Asian century?

WAYNE SWAN: Well I think we've got to put in place a pretty comprehensive productivity agenda. The Government has been doing that in the first four and a bit years of office, investing for example in education, investment and the NBN, a whole host of policies which will lift our productivity over time so we can maximise the opportunities that come from growth in the region.

At the moment when we think of Asia we think of resources but of course in the next few years there will be strong growth in the Asian middle class, particularly in China. That will bring a whole new raft of opportunities to Australia when it comes to goods and services that we can export to the region and equally, I think the cultural involvement, not just the economic relationships will become increasingly important and that's one of the reasons why we've commissioned the Asian century white paper to basically engage the community in discussion about what we can do further to maximise all of the opportunities, economic, cultural, people to people, between Asia and Australia.

STEVE CANNANE: What do you mean by cultural involvement?

WAYNE SWAN: Well I mean the people to people relationships, I think, are just as important and in some ways it's the people to people relationships which build the economic relationships over time.

Just, for example, take that landmark trip to China in 1971 by Gough Whitlam, Tom Byrnes and Mick Young. That was far sighted; it required enormous political courage because the conservative government at the time of Billy McMahon heaped ridicule on them by going to China and as it turned out five days later Kissinger went to China to open up relationships between the United States and China.

Those people to people relationships between Gough Whitlam and his generation and the Chinese leadership of that generation led to, I believe, the strength of the relationship today. Now we need to repeat that not just at the leadership level but at a whole lot of levels, whether it's the educational industry, it's the relationships that come through there, whether it's cultural, whether it's music, whether it's art, the whole gambit of human relationships are what counts in this Asian century.

STEVE CANNANE: You need to have understanding between cultures and that was a theme picked up by David Grewen who is working on this white paper. What he said is we need to understand the region and be comfortable with it and we have a long way to go. If we have a long way to go what are the priorities to ensuring we can improve those people to people relationships?

WAYNE SWAN: That's what David and all of the crew who are preparing the white paper are looking at now and he was making the point that I just made to you before that we shouldn't just see it through the prism of the economic relationships, it's far wider than that. It's the people to people contact, whether it happens through education, whether it happens through culture or whether it happens in pure business to business relationships, all of those are a very important part of the equation.

You see, we are fortunate to live in this region. There's this huge shift in economic power going from West to East. We are ideally located to benefit economically and I think the point David is making is to do even that we've got to view the relationship in far wider terms, particularly in the cultural terms that he's talking about.

STEVE CANNANE: On your trip to China how high is it on the agenda to lobby China to allow Australian companies to directly convert Australian dollars to the Yuan given the transaction costs of mining companies and also other face having to convert from the UN to the US before they convert into the Yuan?

WAYNE SWAN: We're having a discussion with the Chinese authorities about this matter. I'm hosting a seminar in Hong Kong tomorrow. It will come up in the discussions that I have at a leadership level as well.

I'm meeting the Chinese vice premier, I'm seeing the head of the People's Bank, so there's a broad range of consultations, but it's not the only purpose for the trip but it's an important matter and it's one we've been working on for some time in which we have achieved progress over time.

STEVE CANNANE: What kind of progress? How close are you to sealing some sort of deal on that?

WAYNE SWAN: Well of course at the moment you can convert offshore relatively easily and you can convert onshore but you have to go through a US dollar conversion before you go directly to the RMB. We want to make progress in that area, that's the area we're looking at.

STEVE CANNANE: If Australia has such a close relationship with China why hasn't this happened earlier? Japan and the US are both already able to directly trade between the currencies?

WAYNE SWAN: Well, we have been making progress and there have been, if you like, milestones along the way. Earlier this year there was a swap set up between the People's Bank and the RBA here in Australia. That is a step along the way and we have actually been making progress.

STEVE CANNANE: So progress but no deal yet. Have there been road blocks along the way?

WAYNE SWAN: I don't intend to pre-empt the discussions I'm having. We've got a very good relationship with the Chinese and I meet with them regularly, not just in China, but also at G20 meetings around the world. It's a close relationship and we've been making progress in this area but if you look at our trade figures, I mean they're the best indicator of the overall economic relationship and they're going gang busters.

STEVE CANNANE: Just on the trade figures, there's been some new economic data out of China. Today import there's have grown by less than forecast at around 6 per cent. Are there concerns domestic consumption are slipping in China and that could have some impact on the Australian economy?

WAYNE SWAN: There has been a slowing in the Chinese economy and that's no secret at all because the Chinese authorities set out to slow their economy some time ago because they were dealing with inflationary pressures. On top of that now we've seen a weakening in the global economy and in particular the challenges in Europe but I've got a lot of faith in the Chinese economy that it will continue to grow at a reasonably strong pace. It may come down a little bit on where it's been historically but I think most people who are close observers of China know they've got the policy capability to lift growth should they need to do so if global growth were to weaken more.

STEVE CANNANE: So any impact on the Australian economy with those figures?

WAYNE SWAN: I think it's completely foolish to take one set of figures and then transfer that to a judgment about the growth in the Chinese economy and for that matter the growth in the global economy or for that matter what it means immediately for Australia.

STEVE CANNANE: Wayne Swan we'll have to leave it there but thanks very much for talking to us.